[Federal Register Volume 61, Number 97 (Friday, May 17, 1996)]
[Notices]
[Pages 24957-24959]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-12429]



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DEPARTMENT OF JUSTICE
Drug Enforcement Administration


Manufacturer of Controlled Substances; Notice of Registration

    By notice dated August 14, 1995, and published in the Federal 
Register on August 22, 1995 (60 FR 43613), Ganes Chemicals, Inc., 
Industrial Park Road, Pennsville, New Jersey 08070, made application to 
the Drug Enforcement Administration (DEA) to be registered as a bulk 
manufacturer of methylphenidate.
    A registered manufacturer of bulk methylphenidate filed a comment 
alleging that DEA's notice of application, published in the Federal 
Register, did not comply with notice and comment rulemaking 
requirements of the Administrative Procedure Act (APA). In addition, 
the commentor stated that Ganes' registration would be contrary to the 
public interest under 21 U.S.C. 823(a).
    The commentor maintains that DEA ``has deprived [the commentor] and 
other registered manufacturers and applicants of the opportunity to 
offer fully-informed comments on Ganes' application.'' In support of 
its position, the commentor submits that ``registration of bulk 
manufacturers of schedule I-II controlled substances is subject to 
notice and comment rulemaking.'' For the reasons provided below, this 
conclusion is an incorrect interpretation of the APA. First, the 
commentor ignores the basic definitions set forth in the APA and, in so 
doing, confuses notice and comment rulemaking with agency licensing 
proceedings. The commentor argues that DEA proceedings to grant or deny 
an application for registration as a bulk manufacturer are rulemakings. 
However, the clear language of the definition of a ``rule'' exposes the 
error of this analysis. The APA defines ``rule making'' to mean an 
``agency process for formulating, amending, or repealing a rule.'' 5 
U.S.C. 551(5).
    The APA defines a ``rule'' as:

    The whole or a part of an agency statement of general or 
particular applicability and future effect designed to implement, 
interpret, or prescribe law or policy or describing the 
organization, procedure, or practice requirements of an agency and 
includes the approval or prescription for the future of rates, 
wages, corporate or financial structures or reorganizations thereof, 
prices, facilities, appliances, services or allowances therefore or 
of valuations, costs, or accounting, or practices bearing on any of 
the foregoing.

5 U.S.C. 551(4).
    Review of the APA's definitions of license \1\ and licensing \2\ 
reveals that the granting or denial of a manufacturer's application for 
registration is a licensing action, not a rulemaking. Courts have

[[Page 24958]]

frequently distinguished between agency licensing actions and 
rulemaking proceedings. See, e.g., Gateway Transportation Co. v. United 
States, 173 F. Supp. 822, 828 (D.C. Wis. 1959); Underwater Exotics, 
Ltd. v. Secretary of the Interior, 1994 U.S. Dist. LEXIS 2262 (1994). 
Since courts have interpreted agency action relating to licensing as 
not falling within the APA's rulemaking provisions, it is probably not 
an oversight that the commentor has not cited any cases in which an 
agency action on a license was required to comport with Sec. 553 of the 
APA.
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    \1\ Section 551(8) of the APA defines license as ``the whole or 
a part of an agency permit, certificate, approval, registration, 
charter, membership, statutory exemption or other form of 
permission.'' (emphasis added).
    \2\ Licensing is defined as ``agency process respecting the 
grant, renewal, denial, revocation, suspension, annulment, 
withdrawal, limitation, amendment, modification, or conditioning of 
a license.'' 5 U.S.C. 551(9).
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    In Underwater Exotics, the United States District Court for the 
District of Columbia drew the distinction between an agency placing 
conditions on a license and agency creation of a rule. In that case, 
the Fish and Wildlife Service (Service) imposed certain conditions on 
the plaintiff's import/export license; the plaintiff sued, arguing, 
inter alia, that the Service failed to comply with the APA's rulemaking 
requirements.
    The court looked to the APA's definitions of ``licensing'' and 
``rule'' and concluded that ``the Service's imposition of these 
conditions on a license did not violate the APA, because the Service's 
actions did not involve the creation of a rule.'' 1994 U.S. Dist. LEXIS 
2262, *26. The court explained that:

    The Service's imposition of conditions on the plaintiff's 
import/export license clearly fall within the definitions of 
``license'' and ``licensing,'' * * * this agency action is not a 
``rule making.'' Absent specific statutory direction otherwise, a 
court should not force an agency to employ a certain procedural 
format * * *.

Id.
    Since the registration of bulk manufacturers is not a ``rule,'' DEA 
is not required to follow traditional notice and comment rulemaking 
procedures when granting or denying applications for such registration. 
In fact, the D.C. Circuit, in a case cited by the commentor, clearly 
supported this analysis in a decision in which the court stated that 
``agency action that clearly falls outside the definition of `rule' is 
also freed from rulemaking procedures.'' Batterton v. Marshall, 648 F. 
2d 694, 701 n. 25 (D.C. Cir. 1980).
    In a final rule which amended 21 CFR Sec. 1301.43(a), effective 
July 20, 1995, DEA eliminated the right of current bulk manufacturers 
or applicants to request a hearing on an application to bulk 
manufacture a Schedule I or II controlled substance. In the regulation 
as amended, however, DEA continued to invite comments and objections 
from such manufacturers or applicants on a pending application. (60 FR 
32099 (June 20, 1995)). The commentor claims that DEA voluntarily 
adopted the APA's notice and comment procedures when it changed the 
third party hearing regulation in the final rule of June 20, 1995. This 
contention, however, is not supported by either the notice of proposed 
rulemaking (59 FR 3055) or the final rule. In fact, while the final 
rule does invite written comments from current manufacturers and 
applicants, nowhere in this rule does DEA state, implicitly or 
explicitly, that it intended to follow notice and comment rulemaking 
procedures when acting upon a bulk manufacturer's application. DEA 
simply stated in the final rule that it would take into account such 
written comments when deciding whether to grant a particular 
registration or whether to issue an Order to Show Cause proposing to 
deny an application.
    The commentor contends that ``[w]ithout access to * * * Ganes' 
application, any reports of DEA inspections of Ganes, or DEA's 
assessment of how it might apply the statutory public interest test, it 
is impossible for [the commentor] and other registered manufacturers to 
offer fully-informed comments on Ganes' fitness for registration.'' 
Nowhere in the final rule was it contemplated that DEA would turn over 
information in its files in order for others to determine whether to 
object or not. DEA is well aware of what it has in its own files and 
will supplement that information with any comments filed in rendering a 
decision whether or not to grant an application. In determining whether 
an applicant meets the public interest standard, DEA is perfectly 
capable of analyzing its own investigative reports. Therefore, it is 
not necessary for DEA to turn over information it has gathered on a 
particular applicant to another registered manufacturer.
    Moreover, under 21 U.S.C. 824(a), only the Attorney General has the 
discretion to decide whether or not to file an Order to Show Cause. The 
rule amending 21 CFR 1301.43 did not and, indeed, could not, authorize 
a third party to exercise such discretion in light of the clear 
statutory mandate to place such decisions exclusively with the Attorney 
General.
    If DEA determines, based upon its own investigation and upon 
information provided to it through written comments, that the 
registration of an applicant would not be in the public interest, an 
Order to Show Cause will be issued. If the applicant requests a 
hearing, the ensuing adjudicatory proceedings will comply with the APA. 
DEA's decision to address applications via individual adjudication, and 
not by notice and comment rulemaking, is within its discretion and in 
conformity with both the APA and the Controlled Substances Act (CSA). 
Courts have held that agencies have this discretion to determine 
whether to proceed by rulemaking or individual adjudication. See PBW 
Stock Exchange v. Securities and Exchange Commission, 485 F. 2d 718, 
731 (3d Cir. 1973), cert. denied 94 S. Ct. 1992.
    Finally, the commentor's citation to Rodway v. USDA, 514 F. 2d 809 
(D.C. Cir. 1975) and Heron v. Heckler, 576 F. Supp. 218 (N.D. Cal. 
1983) is inappropriate. In those cases, as the commentor itself 
acknowledges, the agencies in question had either promulgated a 
regulation or adopted a policy statement specifically espousing the 
APA's notice and comment requirements. DEA has done neither.
    The commentor also submitted that the sixty day comment period was 
inadequate because that commentor needed more time to obtain and assess 
documents from DEA and the U.S. Department of Health and Human 
Services, Food and Drug Administration. The regulation, as amended June 
20, 1995, contemplated that DEA would receive information from 
qualified third parties that is already available and known to such 
parties. As explained above, the intent of the regulation never was to 
have other bulk manufacturers or applicants become an independent 
investigative branch. Under these circumstances, the sixty-day comment 
period is adequate.
    DEA's action upon a bulk manufacturer's application is not a 
rulemaking action. DEA is therefore not required to follow notice and 
comment rulemaking when considering these applications. Neither the APA 
nor the CSA requires DEA to follow notice and comment rulemaking when 
acting upon bulk manufacturer applications. While DEA invites comments 
from other bulk manufacturers and applicants, such invitation does not 
translate into an implicit adoption of notice and comment rulemaking. 
Consequently, the sixty day comment in which to file comments is 
reasonable and adequate.
    On February 14, 1996, the Commentor filed a belated, additional 
comment. This comment maintained that the dictum set forth in MD 
Pharmaceutical, Inc. v. Drug Enforcement Administration, No. 95-1267 
(D.C. Cir. January 2, 1996) required DEA to set forth the reasons why 
DEA intends to register Ganes under certain factors set forth in 21 
U.S.C. 823(a). Whether or not the Commentor's interpretation is correct 
or not, DEA will adequately address the commentor's objections and

[[Page 24959]]

set forth the reasons why DEA believes Ganes' application should be 
granted under the factors pursuant to 21 U.S.C. 823(a) as set forth 
below.
    In stating that Ganes Chemicals, Inc.'s application to manufacture 
methylphenidate would be contrary to the public interest under 21 
U.S.C. 823(a), the commentor argues that Ganes would lack effective 
controls against diversion of methylphenidate; that Ganes' past 
experience in the manufacture of controlled substances and experience 
in the establishment of effective control against diversion were 
questionable; that there is currently an adequate and uninterrupted 
supply of methylphenidate under adequately competitive conditions; and 
that there were other relevant factors to indicate that Ganes' 
registration would be contrary to the public health and safety.
    In support of the contentions that Ganes lacks effective controls 
to prevent diversion and that Ganes' past experience in this regard was 
questionable, the commentor states that as a result of an Order to Show 
Cause issued by DEA and a Civil Complaint filed in the United States 
District Court for the District of New Jersey charging Ganes with 
various security and record-keeping violations and with manufacturing 
controlled substances in excess of quotas, Ganes entered into a Consent 
Agreement in December 1980, agreeing to withdraw its application to 
bulk manufacture methaqualone and not reapply until 1984 and pay a 
$25,000 fine.
    Ganes' application is based on the firm's request to add 
methylphenidate to its existing registration as a bulk manufacturer. 
Ganes has been and is currently registered with DEA as a bulk 
manufacturer of other Schedule II controlled substances. Both the Order 
to Show Cause and the civil complaint occurred over fifteen years ago. 
The firm has been investigated by DEA on a regular basis since that 
time to determine if the firm maintains effective controls against 
diversion and if its continued registration is consistent with the 
public interest. These investigations have included, in part, 
inspection and testing of the firm's physical security, audits of the 
firm's records, verification of compliance with state and local law and 
a review of the firm's background and history. The investigations have 
found Ganes to be in compliance with the CSA and its implementing 
regulations.
    The commentor argues that there is an adequate and uninterrupted 
supply of methylphenidate under adequately competitive conditions. In 
support of this argument, the commentor asserts that the present bulk 
manufacturers are adequate for this purpose, that quota restrictions 
have been eased sufficiently since 1988, and that the commentor sells 
methylphenidate in dosage form to itself and other distributors.
    Under Title 21, CFR 1301.43(b), DEA is not required to limit the 
number of manufacturers solely because a smaller number is capable of 
producing an adequate supply, provided effective controls against 
diversion are maintained. DEA has determined that effective controls 
against diversion will be maintained by Ganes.
    The commentor, in support of its argument that Ganes' registration 
would be contrary to the public health and safety, cites Ganes' 
manufacture of the List I chemicals, ephedrine and pseudoephedrine. The 
commentor states that DEA has reported that ephedrine and 
pseudoephedrine are used in the clandestine manufacture of 
methamphetamine and methcathinone and that companies such as Ganes may 
be the source of these chemicals.
    With respect to Ganes' manufacture of ephedrine and 
pseudoephedrine, there is no evidence of any violations of the Chemical 
Diversion and Trafficking Act (CDTA) and the Domestic Chemical 
Diversion Control Act (DCDCA).
    Another factor which the commentor claims is relevant is that the 
Food and Drug Administration (FDA) has made various inspections of 
Ganes' two production centers between 1980 and 1994, and noted various 
problems with record keeping, manufacturing practices and product-
complaint procedures. The commentor states that some of these findings 
pertain to controlled substances.
    The FDA violations are based on the practices of another federal 
agency within another department of government operating under the 
authority of distinctly different statutes. Moreover, DEA has verified 
with FDA that Ganes' drug registration under the Federal Food, Drug and 
Cosmetic Act is current, that the nature of the indicated (or noted) 
FDA citations against Ganes and the FDA actions to ensure compliance do 
not warrant a finding that Ganes' compliance with Federal laws is so 
lacking or inadequate as to warrant denial under the CSA.
    It is within DEA's sole discretion to decide whether or not to file 
an Order to Show Cause after reviewing all of the evidence, including 
the comments and objections provided to DEA under 21 CFR 1301.43(a). 
After reviewing all the evidence, including the comment filed, DEA has 
determined, pursuant to 21 U.S.C. 823(a), that it is consistent with 
the public interest to grant Ganes' application to manufacture 
methylphenidate at this time. Therefore, pursuant to 21 U.S.C. 823 and 
28 CFR 0.100 and 0.104, the Deputy Assistant Administrator, Office of 
Diversion Control, hereby orders that the application submitted by the 
above firm for registration as a bulk manufacturer of the basic classes 
of controlled substances listed above is granted.

    Dated: May 13, 1996.
Gene R. Haislip,
Deputy Assistant Administrator Office of Diversion Control Drug 
Enforcement Administration.
[FR Doc. 96-12429 Filed 5-16-96; 8:45 am]
BILLING CODE 4410-09-M